Colorado Economy Remains on Solid Footing

The most recent data release by the Bureau of Labor Statistics showed the Colorado economy remains on solid footing.

The unemployment rate dropped from 6.2% a year ago to 4.0% this year. That sharp of a drop produces significant shock within the system, more so than when the change is more gradual.

With that sharp of decline, it becomes difficult to find workers in some occupations. That difficulty will be accentuated by a sense of urgency to find workers. As well, more industries will face upward wage pressures. That is good for workers, but will cut into the bottom line of companies.

The recent jobs data is another indicator the Colorado economy is continuing to grow at a steady pace. For all practical purposes, it is meaningless to talk about the December numbers. When BLS makes their annual revisions in March, it is likely the number of Colorado jobs will be revised upwards.

The U.S. economy is solid which bodes well for Colorado. New car sales have returned to pre-recession levels, real GDP will be stronger this year both globally and for the U.S., the U.S. should add more than 2.6 million jobs this year (and Colorado should be at least 2.7% of that total), government spending will be stronger, and purchasing managers in manufacturing and service companies are optimistic.

In Colorado, BLS data will show that the number of establishments increased at a greater rate than in 2013. If there are more businesses there are more potential job opportunities for workers.

In 2015 about 60% of job growth will be in construction; health care; accommodations and food services; retail trade; and professional and technical services.

Admittedly, the price of oil will have an effect on the rate of job growth in 2015; however, at a statewide level, most of the top sectors will show steady growth unless the price of oil stays low for an extended period.

The steady growth that is currently occurring in the Colorado economy is much easier to manage and deal with than the rapid growth the state experienced during the 1990s.

cber.co 2015 Colorado Economic Forecast by Category

The primary focus of most state economic forecasts is to project total state employment.

Some economists also produce sector forecasts. They usually add projections for the sectors to derive the state total, an approach that introduces numerous variables for error.

cber.co feels the most accurate forecast is achieved by projecting total employment based on projections for categories of sectors. Sectors are grouped into three categories based on their past performance.

Projections for the categories and overall employment are based on trends, feedback from business leaders, economic developers, and other economists. The sum of these categories is then compared to the projections for overall total employment.

Minor adjustments are made and the final forecast is produced for three scenarios. The most likely scenario is used as the final cber.co forecast. This final step helps create a better understanding of upside and downside risk associated with the forecast.

This portfolio approach has made it easy to see that some sectors consistently create jobs at a higher rate of growth, some show solid growth, and others are more volatile. Ultimately, the volatile category tends to have a greater influence on the amount of change in total job growth than the sectors with steady growth.

In 2015, the growth of the Strong, Solid, and Volatile Growth Categories will be similar to 2014.

The Strong Growth Category of sectors (green) has performed consistently over time. The category added jobs as expected in 2014. The larger sectors (Health Care, PST, and B-to-B, excluding Temp. Services) grew at a rate faster than the state. Arts, Entertainment, and Recreation, a smaller sector, grew faster than the state.

Recent and projected employment changes for the Strong Growth Category follow:
• 2012 24,000
• 2013 20,000
• 2014 20,900
• 2015 20,000 to 24,000

Over time, the Solid Growth Category of sectors (yellow) has been more volatile than the Strong Growth Category. In 2014, this category performed stronger than anticipated. AFS and K-12 Education expanded at a faster rate than the state.

Recent and projected employment changes for the Solid Growth Category follow:
• 2012 15,600
• 2013 27,600
• 2014 25,200
• 2015 24,000 to 28,000

Finally, the Volatile Category of sectors (red) was a significant source of growth in 2013 and 2014. In 2014 the Construction, Employment Services, Transportation and Warehousing, and the Extractive Industry sectors expanded at a faster rate than the overall state average.

Recent and projected employment changes for the Volatile Category follow:
• 2012 15,100
• 2013 19,800
• 2014 25,600
• 2015 23,000 to 27,000.

In 2015, overall state employment will increase by 2.8% to 3.0% or 70,000 to 76,000 jobs. Average Colorado employment will be 2,525,600 for 2015.

For additional information about the 2015 cber.co Colorado Economic Forecast click here.

Colorado Economic Forecast

Colorado Employment to Continue at Steady Pace in 2015

Later this week, cber.co will release its Colorado economic forecast for 2015. The primary focus of the Colorado forecast is employment within the state. As economic developers say, “it all starts with a job.”

Each year the forecast provides an optimistic, pessimistic, and most likely scenario.

The 2015 optimistic scenario calls for:
• U.S. Real GDP growth will be greater than 2.9%.
• Colorado will add more than 76,000 workers.

The projected likelihood of this scenario is 15%. The Colorado economy has experienced solid job growth since 2012; however, there is nothing to believe that it will experience growth at a significantly greater rate during 2015.

The pessimistic scenario calls for:
• U.S. Real GDP growth will be less than 2.5%.
• Less that 70,000 Colorado workers.

Unfortunately, there is more downside risk to the forecast than upside risk. The projected likelihood of this scenario is 30%. While the global and U.S. economies are expected to see slight growth in output, the Colorado economy could be derailed if the price of oil remains below $65 per barrel (the estimated breakeven point for the Niobrara Oil field) for an extended period.

The most likely scenario calls for:
• U.S. Real GDP will be 2.5% to 2.9%.
• The U.S. will add at least 2.6 million workers.
• Colorado will add 3.0% of total U.S. jobs added.
• Colorado will add 70,000 to 76,000 workers, job growth will be 2.8% to 3.0%.

Despite downside risks associated with lower prices for oil and reduction production in Colorado there is a 55% likelihood this forecast will occur. Since 2012 growth has been steady and broad-based. Much of the growth has been in sectors such as tourism, which have an indirect link to the extractive industries.

Average Colorado employment will be 2,525,600 for 2015.

For additional information about the 2015 cber.co Colorado Economic Forecast click here.

Healthcare, Extractive Industries, and Wages

Looking ahead to 2015 there are three issues that will impact the economy in 2015: healthcare, extractive industries, and wages.

Healthcare
The healthcare industry may play an important role in the economy in 2015.
• First, there are shortages of workers in many key positions. This may affect the care consumers receive from their service providers and it may increase the costs of doing business.
• Second, providers are being pushed by Obamacare and insurance companies to reduce the fees they charge. In turn, this may reduce their margins.
• Third, it was recently announced that Colorado employers will face an 8% increase in the cost of insurance. Likely, a portion of that increase will be passed on to workers. That could reduce that amount of discretionary income, which in turn could reduce retail consumption.
• In addition, it has been announced that Connect for Health Colorado, will reduce subsidies. In other words, many Coloradans will have to pay significantly more for coverage, go without healthcare, or pay a fine to the government. Coloradans will face sticker shock when they get their health insurance bills in 2015.

Extractive Industries and Prices of Oil and Gasoline
The extractive industries will continue to face challenges in 2015. Fracking is still an issue in Colorado that will not go away. Local governments are pushing to have greater control over the way the extractive industries operate in their jurisdiction.

In addition, the price of oil has trended downward for the past six months. If these trends continue, it may impact production in Colorado, which will hit the smaller companies first. It will also impact severance taxes paid to the state government.

At the same time consumers have enjoyed lower prices at the pump. Their gasoline bills for 2013 and 2014 will be similar. If lower prices continue into 2015, consumers may notice a reduction in their annual gasoline bill in the range of $400 to $800 for the year.

If prices at the pump continue to decline Colorado consumers will be the benefactors, but state coffers suffer. Typically the negative impact for the state outweighs the positive impact on the consumer.

Wages
Typically, when unemployment dips below the natural rate of employment, 4.5% to 5.0%, there is usually upward pressure on wages. Overall that has not been the case in Colorado.

Between 2007 and 2014
• The Denver Boulder Greeley CPI  (DBG) increased at an annualized rate of 2.4%
• The Private Sector Average Weekly Wages (AWW) increased by an annualized rate of 1.7%.
Inflation for this period grew at a faster rate than private wages for this period.

Between 2013 and 2014
•  The DBG CPI is projected to increase by 2.8%/
• The Private Sector AWW will increase by 2.0%.

The Construction and Financial Activities are isolated sectors that have seen strong wage growth in the last couple of years because the demand for qualified employees has exceeded the supply of workers.

Construction Wages
• Between 2008 and 2012 AWW declined. In 2013 it increased by 11.0% followed by an increase of 11% in 2014. Construction businesses have found that it has been necessary to raise wages this amount to attract workers. Ultimately these labor costs will be passed on to consumers.
Financial Activities
• The financial activities sector has also had strong wage growth, 5.0% annualized growth, from 2007 to 2014. Between 2007 and 2010 Average Weekly Wages decreased, but they have increased significantly since.  AWW will increase by 7.3% in 2014

On the other hand, 2014 inflation growth will exceed the change in wages for Manufacturing, Tourism, and Professional and Business Services. These three industries are critical to the state economy for different reasons.

Watch for healthcare, extractive industries, and wages to impact the Colorado Economy in 2015 – and the impact may not always be positive.

 

Colorado Lost 700 Jobs – Don’t Believe It

Earlier this morning, the Colorado Department of Labor and Employment issued a press release stating that Colorado lost 700 jobs in August compared to the previous month. The data series was adjusted.

The data does not reflect what is happening on the street. It fails to echo the confidence that consumers have in the national and state economy.

• The ISM indices for manufacturing and the services sector are positive.
• While some of the construction data is flat or down, NAHB data is up, suggesting better data in the months ahead.
• On 9/26, the Q2 GDP will be revised. The third estimate is expected to be revised upwards to 4.8ish.

Locally, there is even stronger reason to be optimistic.

• The state made it through the summer without any major fires, floods, or other natural disasters (knock on wood).
• The number of business establishments continues to increase. The leaders in relative growth are Broomfield, Denver, Douglas, and Boulder.
• Universities and K-12 are better funded than a year ago.
• Retail sales tax collections up, as evidenced by increased budgets for the state and many municipalities.
• The State General Fund has collected more revenue, a reflection of improved business and personal income taxes.
• The Colorado Tourism Office has reported a record level of tourism visitation and spending for the summer months.
• Developers are optimistic – believably optimistic.

From a methodological perspective, there are multiple reasons why the data will likely be revised upwards next month and later in March 2015. While it is possible the data turned down slightly in August, it is difficult to believe there were seasonally adjusted job losses in August.

Colorado Loses 700 Jobs

 

U.S. and Colorado Economy Remain Solid

National Economy
The U.S. economy remains strong, with solid employment and output growth.

• Nationally, employment remains strong, despite slower than expected job growth in August. The non-seasonally adjusted data shows that an average of 215,000 jobs has been added each month through eight months. This means the U.S. will add about 2.5 million jobs this year.
• Output remains solid. The first Q2 estimate showed real GDP growth of 4.0%. That was revised upwards to 4.2%. It is possible the third estimate, due later this month, could be revised even higher to 5.0%.
• At the most recent FOMC meeting the Federal Reserve provided no surprises. Their stance on the economy indicates:
o The rate of inflation remains below target.
o Quantitative easing will come to an end.
o There is slack in the labor market.
o Interest rates will remain low in the near term; however, once rate increases begin they will accelerate faster than previously anticipated. It is likely rates will begin increasing in mid-2015.
• The outlook for construction is positive.  Single family building permits have been flat; however the NAHB index shows that homebuilder sentiment is much stronger than the permits data. This suggests greater activity, and stronger data, will occur in the future.
• The unemployment rate, number of unemployed, and the number of Americans filing new claims for unemployment benefits continue on a downward trend. The economy should remain healthy as long as fewer people are unemployed and an increasing number of Americans are working.

Colorado Economy

The performance of the Colorado economy is closely tied to changes in U.S. job and output growth. Since the end of the recession Colorado job growth has outperformed the U.S. because of its mix of industries. The state is on track to add jobs at an accelerated rate for the fourth consecutive year.  Job growth this year will be about 3.0%.

• The extractive industries have been a major direct and indirect contributor to the job growth. As well, the extractive industries were responsible for about one-third of the state’s GDP growth in 2013. The extractive industries are important to the economies of about half the counties in the state. From a jobs perspective, the sector is small, but the number of workers will increase by at least 9% this year compared to 2013.
• So far this year, between 10% and 12% of the jobs added in Colorado are construction jobs. The number of jobs will increase by at least 6.5% compared to the same period last year. Growth in the sector might be constrained by a lack of trained workers in specialized construction occupations such as plumbers, HVAC workers, and electricians. The home and infrastructure subsectors also include distinct specialized occupations.
• Tourism has enjoyed a banner year in Colorado. It began with good snow and a strong ski season. The good snow season also meant plenty of water for mountain rafting and summer tourism activities. Special events, such as the USA Pro Challenge, and the lack of fires and flooding provided the foundation for a strong summer season. Leisure and hospitality job growth is poised to be at least 4.6% greater in 2014 than last year. The sector will be responsible for adding about 19% of the jobs in the state this year.  The sector plays a significant part of the economy in all 64 counties.
• The healthcare sector will add more than 10,000 workers in 2014 and expand at a rate of more than 4.3%. The sector continues to face challenges finding workers in many occupations and in rural areas.
• The growth of the professional, scientific, and technical sector is important to the state because a portion of these companies are directly or indirectly a part of the state’s advanced technology sector. The lifestyle of Downtown Denver and Colorado is attracting millennials to jobs in these sectors. The growth of in the sector will be at a rate of about 4.5% in 2014. It is important to note that many of these occupations pay higher than average wages and the sector is adding jobs at an increasing rate.

 

Colorado Job Growth Outpaces the U.S.

Colorado is outpacing the U.S. in the rate of job growth. The mix of jobs added by the top sectors is different for Colorado than the U.S. In addition, many of the jobs being added in the state pay lower than average wages.

Through seven months, the sectors that contributed the greatest number of jobs (top five) account for 70.4% of jobs created in Colorado.

  • Accommodations and Food Services 19.8%
  • Health Care 15.9%
  • Professional, Scientific, and Technical Services 12.0%
  • Construction 11.9%
  • Retail Trade 10.8%.

Through seven months, these same five sectors contributed only 56.4% of the jobs created in the U.S.

  • Accommodations and Food Services 14.1%
  • Health Care 12.6%
  • Professional, Scientific, and Technical Services 9.1%
  • Construction 7.7%
  • Retail Trade 12.8%.

Colorado’s rate of growth for these sectors during the first seven months is faster than the U.S.

  • Accommodations and Food Services, 5.5% vs. 2.8%.
  • Health Care, 4.3% vs. 1.7%.
  • Professional, Scientific, and Technical Services, 4.3% vs. 2.7%.
  • Construction 6.5% vs. 3.2%.
  • Retail Trade 3.0% vs. 2.0%.

For the first seven months, the cumulative total of the Colorado sectors where primary jobs were categorized (manufacturing, information, PST) expanded at a faster rate than the U.S, 2.7% vs. 1.3%.

The following are the average annual private sector wages for the sectors that are adding the most jobs.

  • Accommodations and Food Services $18,808.
  • Health Care, $45,905.
  • Professional, Scientific, and Technical Services, $84,842.
  • Construction, $51,064.
  • Retail Trade $28,159.

Many of the jobs being added in Colorado are low paying jobs.

It is great that the Colorado economy is adding jobs. Time will tell whether the mix of jobs being added will be to Colorado’s benefit or detriment.

Colorado Economy Remains Strong

National Economy

The Colorado economy is outperforming the U.S. economy. Recent strength in the U.S. economy is a positive sign for Colorado.

Nationally, employment remains strong. The non-seasonally adjusted data shows that an average of 230,000 jobs have been added each month through seven months. Most likely the U.S. will add about 2.5 million jobs this year.

On a positive note, the labor force participation rate appears to have bottomed out.

Real GDP increased by 4.0% in Q2. The reasons for the increase in the real GDP were:

  • Stronger personal consumption.
  • Greater private inventory investment.
  • Increased residential fixed investment.
  • Stronger non-residential fixed investment.
  • Improved state and local government spending.
  • Greater demand for exports

Factors that offset the growth were:

  • Increased demand for imports.
  • Decreased federal government spending.

An area of potential concern is construction. Hopefully the industry is taking a breather after its recovery from the Great Recession. The number of building permits issued over the past year has been flat.

In addition, the housing market is cooling off. The rapid appreciation in housing prices is tapering off.

Both manufacturing and services have been solid since the second half of 2009. At least this is being reflected in the growth of the GDP.

Implications of the National Economy on Colorado

These indicators have several implications for Colorado. The short-term outlook points to stronger personal consumption, which bodes well for retailers and tourism, particularly if Mother Nature cooperates by bringing early and frequent snow for the ski season.

Stronger retail sales will add to the coffers of the state and local governments, which should point to continued increases in government spending. This would benefit everything from schools to infrastructure.

On the downside, lower or constrained government spending could impact the military and federal facilities and laboratories. This has the potential to impact the universities and federal facilities in Colorado Springs, Denver, Boulder, and the Northern Colorado metro areas.

The unemployment rate and the number of unemployed continue to trend downward; however, critical labor shortages are developing in many occupations. This is particularly critical to high-tech industries.

Labor shortages are impacting all industries in Northern Colorado which is experiencing rapid growth as a result of the extractive industries boom. Workers are being raided from other companies and industries, which will ultimately drive wages up.

The Colorado construction market still appears to be solid and the value of residential housing is growing, albeit at a slower rate than last year. At the same time the Dow Jones Industrial Average is about where it was at the end of 2013.

Appreciation in the housing and equity markets play into consumer confidence. If consumers feel their house and investments have appreciated, their wealth on paper is greater, and they are more likely to purchases goods and services.

Colorado Economy

The following five sectors account for about 45% of total jobs in the state, yet they are responsible for almost 75% of the jobs added this year.

  • Accommodations and Food Services
  • Health Care
  • Construction
  • Professional and Scientific Services
  • Retail Trade.

All of these jobs are important to the state for various reasons.

  • About 10% of all jobs are in the Accommodations and Food Services sector. AFS has accounted for about 20% of the jobs added this year. As a major component of the tourism sector, AFS is an important part of the economy in all 64 counties.
  • Just under 11% of the state’s s jobs are in the Health Care sector. This category has accounted for about 15% of total jobs added this year. The Health Care sector affects our quality of life and plays a key role in the economy in all 64 counties.
  • The Construction industry is small by comparison, with about 5.0% of total state jobs. Approximately 12% of the job growth is in this category. A segment of the Construction jobs are tied to the growth of the extractive industries.
  • A portion of the Professional, Scientific, and Technical jobs are a key part of the state’s advance technology industries. They account for about 8% of the jobs and 11% of the job growth.
  • Finally, Retail Trade jobs account for almost 11% of total jobs and 11% of total job growth. The retail sector is critical to most local governments because a majority of their revenue is derived from retail sales taxes.

Through seven months of 2014, the average job growth is about 67,300 greater than the same period in 2013.

Strong U.S. Economy Bodes Well for Colorado

The U.S. economy got off to a horrendous start with weak employment in January and -2.6% real GDP growth in Q1. There has since been enough improvement in Q2 for the Federal Reserve to announce it will end QE3 in October. As well, interest rate hikes are likely to occur in 2015, which is good news for some and bad news for others.

It appears the Fed has satisfactorily unwound the quantitative easing program, something many economists feared might not happen at the time it was put in place. Today, most members of the Fed are bullish on the economy, at least for the remainder of 2014. Several members have expressed short-term concerns because retail sales, healthcare spending, and residential construction are underperforming.

A strong U.S. economy bodes well for Colorado.

The equity markets have been volatile in 2014, but the Dow has passed 17,000 and continues to establish new record – highs. Improved equity markets have increased the personal wealth of Coloradans and given them reason to remain optimistic about the growth of the economy.

Through the first half of 2014, U.S. wage and salary jobs have been added at a slightly faster pace than 2013. On average 188,000 jobs were added each month during 2013. By comparison, an average of 194,000 jobs have been added for the first six months of 2014 compared to the first half of 2013. (Source: non-seasonally adjusted data).

Nationally, the unemployment rate continues to drop. It has declined from 6.7% at the end of 2013 to 6.1% at the end of June. A year ago it was 7.5%.

In addition, the number of unemployed continues to decline, dropping to 9,474,000 in June. This is down significantly from 11,747,000 a year ago. By comparison, there were 15,333,000 unemployed in April 2010 at the height of the Great Recession. On the other hand there were 6,731,000 in March 2007 just prior to the Great Recession. Despite the improvement, there are still a number of people struggling to find work.

A similar situation exists in Colorado. Unemployment continues to trend downward, but the number of unemployed remains higher than desired. It has decreased from 6.2% at the end of 2013 to 5.5% in June. Unfortunately, about 150,000 workers remain unemployed. While this number is decreasing at a painfully slow rate, it is about 60,000 greater than the low point in April 2007, the low point prior to the recession.

While the decrease in unemployment is a positive sign, some industries such as construction, manufacturing, and segments of high-tech are struggling to find trained workers. In smaller metro areas such as Weld County there will be a domino effect as higher paying jobs in the oil and gas industry may pull workers from local manufacturers, hotels and restaurants, and construction companies.

The situation is slightly different for some rapidly expanding high-tech industries that require specialized talent (software, technicians, machinists, etc.). Talent attraction is a necessary option for supplying trained workers for these rapidly growing companies. This can be a challenge because there are national shortages in key occupations for the high-tech industry. It is important for Colorado to “train their own” but at the same time Colorado must continue to attract workers from other states.

Through the first six months of 2014 Colorado has added 67,000 jobs compared to the same period last year. Looking ahead, Colorado will continue to see strong growth through the remainder of the year. In certain parts of the state, that growth will occur as an indirect result of the extractive industries and agriculture. In the metro areas, it will be driven by broad-based growth across many industries. The leading areas of growth will continue to be tourism, construction, health care and sectors that are related to advanced technology.

 

Number of Colorado Business Establishments Remains Well Below 2007 Peak

The Bureau of Labor Statistics tracks the number of business establishments as well as the number of employees. An establishment is defined as a single physical location where business is conducted or where services or industrial operations are performed. By contrast, a firm is comprised of establishments.

The number of Colorado business establishments peaked at 180,934 in Q3 2007. As a result of the Great Recession, the number of Colorado business establishments declined to 168,939 in Q1 2011.

There has been steady growth in the number of business establishments since bottoming out in 2011; however, it will be several more years before a return to the 2007 peak. In other words, the effects of the Great Recession are still being felt despite the state’s job recovery.

The number of business establishments in Colorado remains below the 2007 peak.
The number of Colorado business establishments remains below the 2007 peak.

©Copyright 2011 by CBER.